Thursday, December 31, 2009

Amazon Confuses "Never Again" with Anti-Semitism

When I logged onto Amazon to search for a book, my page showed a recommendation to buy Protocols of the Elders of Zion. Amazon is proud of its search recommendations but maybe it has to finesse its engine. I am a Jew and don’t want to buy the unvarnished propaganda that helped justify hundreds of years of persecution and murder.

I presume the reason Amazon recommended the favorite screed of anti-semites is because I bought the genius Will Eisner’s commentary on The Protocols, The Plot: The Secret Story of The Protocols of the Elders of Zion. He created this graphic novel because he was deeply disturbed that The Protocols, which purports to be the actual blueprint by Jewish leaders to take over the world, continued to be published and disseminated throughout the world. It is taught and held as literal truth in the Arab and American White supremacist movement.

It’s kind of like confusing Art Spiegelman’s Maus with Mein Kampf. The algorithmic connection is so offensive it makes me wonder about Amazon.

Google's Youtube is also trying to create better discovery in order to keep its viewers from moving their eyeballs away from the site. "Discovery" in this case means suggesting recommendations by mastering data-mining techniques. And as we see in the case of Amazon's recommendation for me, the meeting of the computer and human mind is flawless. Not.

Christopher T. Volinsky, executive director of statistic research at AT&T Labs Research, who led the team that won that $1 million to improve Netflix's search recommendations, thinks it's complicated but solveable. He said :

"I don't think the YouTube problem is different from the Netflix problem or the Amazon problem."

That it took his team of top computer scientists three years to make a modest improvement to Netflix, which has some 700,000 titles, illustrates the complexity of the task, Mr. Volinsky said.

As a longtime subscriber to Netflix, I suggest it doesn't recommend Riefenstahl's Triumph of the Will because I picked Schindler's List even though they both took place during the thirties when the Nazis picked up steam.

Sometimes a computer is just a computer.

Friday, December 18, 2009

Thank God Citigroup Is In Charge of the Treasury

Whatever happened to pretending that government is in charge?

Kind of a messy situation the other day when Citigroup tried to exit TARP to get out of compensation restrictions. It had to raise $20 billion in a stock offering on Wednesday. To maintain its cover as a non-zombie bank, it convinced the Treasury to sell $5 billion of its 25% ownership of Citigroup at the same time. But guess what? No one wanted to pay what the Treasury originally paid, $3.25 a share. Either the investors know something we don't or all the players are gaming the system.

Thank God Citigroup Vice Chairman Ned Kelly was on the case Monday evening, two days before the offering. He was irate that the government allowed Wells Fargo to launch a stock sale at the same time. So he called a Treasury aide (who?) to complain about the timing.

Then finger pointing began. The Fed and the FDIC weren't too sure the TARP banks were strong enough to exit. There is no mark-to-market valuation, only fair value, if that. No one really knows how strong these banks are or if they'll need mass transfusions of more government aid in the very near future:

[The Fed and the FDIC] privately complained that Treasury officials pushed them to allow banks to quickly leave TARP.

On Thursday, after the government pulled back its stock offering, the Treasury came back at the Fed/FDIC with a quick retort:

[D]ecisions about bank repayments are up to bank regulators at the Fed and FDIC.

So the Treasury blames the Fed and the FDIC. If what the Treasury says is true, why is Ned Kelly calling Geithner? Shouldn't he be calling Bernarke or Bair? If I were cynical, I'd say Geithner is more loyal to Ned Kelly than Sheila Bair, FDIC Chairman.

I can rest easy knowing the taxpayers' money is being safeguarded by the Vice Chairman of Citigroup. Otherwise we might be in real trouble.

Bernarke: Moral Hazard Man of the Year

As a financial consultant and blogger who has been closely following the economic crisis since 2007, I nodded my head in agreement when I heard U.S. Chairman of the Federal Reserve was named Time Magazine’s 2009 Person of the Year

Ben Bernarke should be the Time Person of the Year. Not because he saved the United States from a second Great Depression, but because he created a new economic order and enshrined moral hazard for the most powerful financial institutions in the nation.

In the past, only commercial banks enjoyed the backing of the federal government (vis a vis the FDIC) because they were closely regulated and had to put aside capital reserves to cover potential losses.

Under his guidance as chairman, the Federal Reserve actively intervened to decide which industries and companies would live or die. Before the crisis, investment banks and industrial credit companies like GMAC were not backed by the government precisely because they didn’t submit to supervision.

As the credit bubble collapsed and money became harder to come by, the Fed decided to provide liquidity to every financial institution it deemed “too big to fail.” Bernarke directed the Fed to purchase toxic assets from banks. The Fed is now the largest holder of mortgage-backed securities in the nation. In other words, he shifted the burden of selling illiquid assets of unknown value to the taxpayer.

He helped create and enforce the notion that some financial institutions are “too big to fail”. Instead of breaking up the banks, as Paul Volcker suggested, he encouraged them to merge. JP Morgan Chase took over Bear Stearns. Bank of America swallowed Countrywide and Merrill Lynch. Wells Fargo absorbed Wachovia. Their bigness and hence their ability to cause systemic failure has increased exponentially.

The flip side of the coin is that many financial institutions are considered “too small to save.” These are community banks and credit unions that supply much of the lending to small businesses and individuals. They are also the most affected by high unemployment and mortgage foreclosures. As of November 2009, over 120 banks have failed a five-fold increase over 2008. Unlike the “too big to fail” banks, the smaller banks could not trade off the Fed’s explicit guarantee of losses in order to raise funds to replenish their capital.

By keeping interest rates near zero and providing unlimited liquidity rather than insisting on solvency, Ben Bernarke made it easier for companies such as Goldman Sachs to speculate overseas with cheap money. In the meanwhile, credit has tightened for small business and individuals.

But Ben Bernarke’s crowning achievement was that he enforced moral hazard. Moral hazard is when you encourage risky lending because those that take the risk know they will be insulated from their losses. After the Fed’s extensive interventions, there is no doubt that the United States will not allow these “too big to fail” institutions to fail. For them, there is no downside. They take the profits, the taxpayer takes the losses.

It may be conventional wisdom on Wall Street that Zero Ben saved the economy, but on Main Street, which is considered “too small to save”, things are not so upbeat. The economic crisis was not a natural part of a business cycle. It was man-made, the result of a credit bubble collapse stoked by esoteric financial engineering and leverage to the tune of 100 to 1.

The big banks were amply rewarded; first on the upside, and now come January 2010 bonus time, on the downside.

Yesterday in front of Congress Ben Bernarke said there was no evidence of inflation because “the United States economy was operating so far beneath its potential that inflation was unlikely to become a problem.” This is a statement that can only warm the hearts of stockholders. For everyone else, it implies overcapacity and more unemployment.

In any case, his assertion is belied by the Producer Price Index, which registered a surprising spike in prices (excluding food and energy) on Tuesday.

He also said that he saw no sign of a bubble in the stock market. But stock prices have gone up over 60% since February. The stock index in China is up more than 75% this year and the stock in Brazil are up even more. Oil prices have rebounded to over $70 a barrel from the low $40 range in February.

In his 1999 Princeton economics professor days, Ben Bernarke argued that the Fed should get out of the way of bubbles because 1) it wasn't possible to determine when they occurred and 2) if the Fed intervened it would cause more problems. Obviously keeping out of the housing bubble was a serious error. If he is confirmed on Thursday, perhaps the bubble he doesn’t see is the one that will blow up in our faces.

Thursday, December 10, 2009

Bankers Just Don't Get It

Bankers really think they deserve what's coming to them. They do. Of course, what I think is coming to them and what they think are two different things. Even the WSJ gently acknowledges that bankers may have a wee bit of a perception problem. They think their business was a victim of sudden volatility which righted all by itself. Everyone else knows they recovered because the government bailed (and still bails) them out with buckets of blood and sacrifice.

Monday, December 7, 2009

Today's Anniversary--Pearl Harbor Day

It was 68 years ago today that the Japanese military attacked Pearl Harbor. This launched America's entry into World War II, the "Good War".

The society mobilized. We shared the sacrifice of our men in uniform. We endured shortages of resources needed for the war, such as rubber and meat. We planted Victory Gardens to help feed ourselves. We bought war bonds to help finance the war. The government owed interest to us, not the Chinese. Women came into the factories and built munitions and aircraft. There was the draft.

That war, which was shorter than the concurrent wars in Iraq and Afghanistan, was not walled off from the majority of Americans like the ones now. We have volunteer armies and mercenaries (especially mercenaries) fighting the wars now. America keeps dipping into the till, printing money to go into the hands of privateers. We see no painful images of war's realities, blood and death and the killing of civilians. Instead, we are exhorted to do our part simply by consuming.

There is no shared sacrifice anymore. What glues our society together? Trivial images of fleeting, valueless celebrity scandals re: Tiger Woods and high level party crashers? We live in homogenous communities, segregated census districts where everyone shares the same ideas and never has to cross paths with people who have different ideas. Those different ideas become fuel for anger and violence, and are easily exploited. The population is increasing online. Corporations collect infinite mounds of data in order to pinpoint exactly what you desire as a consumer and sell it to you, one individual, atomized micro-niche at a time.

Will social networking sites hold us together? Can they substitute for deteriorating social institutions?

Sunday, December 6, 2009

America's""" God Is Money

Speech by Tony Judt, Director of the Remarque Institute at NYU, printed in The New York Review of Books, December 17, 2009 (sorry, I only have the print edition):

The "disposition to admire and almost to worship the rich and the powerful and to despise or at least to neglect persons of poor and mean the great and most universal cause of the corruption of our moral sentiments."

Those are not my words. They were written by Adam Smith, who regarded the likelihood we would come to admire wealth and despise poverty, admire success and scorn failure, as the greatest risk facing us in the commercial society whose advent he predicted. It is now upon us.

Wednesday, December 2, 2009

Blowing Bubbles and Economic Amnesia

The institutional memory of financial institutions is appalling. And now that there is no downside to risk, we can look forward to perpetual creative destruction.

Investors plowed money into Dubai even though it had no oil. In essence, it had no collateral except the implicit backing of Abu Dhabi, the capital of United Arab Emirates. Abu Dhabi has been deafening in its silence.

Dubai is a hot desert state that built an indoor ski run and islands within its borders. Investors included Citigroup AFTER it received TARP bailout money:

[I]t lent $8 billion to Dubai last year: Oh, and here's an interesting fact: Citigroup made the loan to Dubai on December 14, 2008. Take a look at the calendar--that's after it received tens of bilions in TARP funds.

But Dubai is not the only overextended government. Every country pumping liquidity into its institutions is on the hook. Which includes the United States :

In the United States, for example, Treasury debt maturing within one year has risen from around 33 percent of total debt two years ago to around 44 percent this summer, while falling slightly since then, according to Wrightson ICAP. The United States will soon have debt problems of its own.

Now we turn to bubbles. Or rather, return to bubbles. What happens when money doesn't cost anything? Investors borrow cheap money (dollars) to buy more profitable assets. When everyone piles into the same assets (mortgage-backed securities, for instance) the assets become way overvalued (homes). Right now the Fed is keeping interest rates at near zero. So what's happening?

Gold prices are up more than 50% in a year's time. China's Shanghai Composite stock index is up more than 75% this year. Stocks in Brazil are up even more. Oil prices have rebounded. They remain far below last year's peaks but a return to those highs could fuel inflation in goods and services more directly than tech stocks or housing did.

Ben Bernarke in his 1999 Princeton professor days argued that the Fed should get out of the way of bubbles because 1) it wasn't possible to determine when they occurred and 2) if the Fed intervened it would cause more problems. Obviously keeping out of the housing bubble was a serious error. Some think incremental interest rate increases would have dampened the credit ardor. As for the bubble's enigmatic invisibility, William Dudley, who is now president of the New York Fed, says that's nonsense:

"I can identify at least five bubbles that one could reasonably have identified in real time," including the tech boom, Mr. Dudley said in a 2006 speech. He knew, he said, because he had speculated against three of them himself when he was chief economist at Goldman Sachs.

Of course, some hold to the view that raising rates is like using a sledgehammer to drive a tack. Says Donald Kohn, the Fed's vice chairman:

"You raise interest rates [to fight a bubble] and you damp all kinds of capital spending and consumer durable spending."

The Fed has been buying Treasury bills and mortgage-backed securities and every other type of depreciated or worthless asset for over a year now. Bernarke is at zero. But no one or no company can get cheap credit except for those deemed too big to fail. There AIN'T no capital spending. How can you dampen nothing?

We can see the bubble. It's here. So what to do?

Sunday, November 22, 2009

Omni Palin

It's one thing that the vertical ad next to my Facebook profile is Going Rogue FREE OFFER!

It's another that her image is being used for the iconic Flat Belly ad on my IE home page. Bespectacled bikinied beauty queen hockey mom caricature. If she can run a household, she can run the U.S. I trust her. She's got common sense. I'd like to have a beer with her.

Glen Beck is doing a political tour and the right wants its candidates to sign loyalty oaths.

Onward to 2012!

Saturday, November 21, 2009

Detroit is the Future

I'd say it’s a disgrace, but that’s too soft a word. It’s a horror. Detroit is dying. Motor City. Motown. A once great city, the hub of American manufacturing, lies in tatters, a victim of the short-sighted decision to favor capital over labor.

The Detroit Silverdome, where the Detroit Lions, Detroit Pistons and Michigan Panthers played, just sold for $583,000. It cost $55 million to build in 1975.

In today’s column by Bob Herbert, who seems to be one of the few who is putting a human face on the economic devastation in the United States, Detroit is:

[E]ndless acres of urban ruin, block after block and mile after mile of empty and rotting office buildings, storefronts, hotels, apartment buildings and private homes. It’s a scene of devastation and disintegration that stuns the mind, a major American city that still is home to 900,0000 people but which looks at times like a cross between postwar Berlin and the ruin of an ancient civilization.

A.I.G. & Fed Transparency: What's Behind the Curtain?

Neil M. Barofsky, the special inspector general of TARP (which technically stands for Troubled Asset Relief Program, aka The Act to Reward Plutocrats), reported this week that the Treasury (at the time headed by Henry Paulson, secretly advised by Lloyd Blankfein, the CEO of Goldman Sachs) and the head of the New York Fed, Timothy Geithner (now Obama’s Treasury Secretary) didn’t use their considerable leverage to force any concessions from the counterparties of the troubled insurer A.I.G.

Who gave the federal government the power to give any money to any financial institution other than commercial banks? The reason commercial banks could be given money was because they were (supposedly) tightly regulated. During those panicked times of Sept/Oct 2008 the Fed and the Treasury gave away a lot of money under dubious authority. Pretty f**king ad hoc. AIG was saved a week after Lehman collapsed by an initial $85 billion government infusion according to the following

The Fed took the highly unusual step using legal authority granted in the Federal Reserve Act, which allows it to lend to nonbanks under "unusual and exigent" circumstances, something it invoked when Bear Stearns Cos. was rescued in March.

A.I.G.'s trading partners, which included Goldman Sachs Group, Merrill Lynch and the large French banks Societe Generale and Calyon, refused to take less than 100 cents on the dollar on assets that were worth far less because they were derived from rapidly defaulting mortgages.

Their legal stance was that the Fed was a creditor and had no standing to put A.I.G. through bankruptcy. They knew by virtue of the $85 billion loan that the U.S. wouldn't let it fail. So they held all the cards. The Treasury and the Fed capitulated.

This was in stark contrast to the way the government dealt with the automakers:

First, the Fed considered itself a creditor of A.I.G., rather than a regulator that could impose its will on banks. It approached A.I.G.'s trading partners with a request for "voluntary" concessions. Mr. Barofsky said this differed from the government's role in the auto industry, where it lent the car makers money but also negotiated aggressively and won substantial concessions from other creditors.

It's self-serving that the counterparties invoked the letter of the law to assure themselves full payment from the Fed.

And it's obvious to any sentient being that class (as in class warfare) is alive and sickening.

Thursday, November 12, 2009

Corporate Authoritarianism

Let's not pretend anymore. The USA is not a democratic republic. Corporate authoritarianism is our government and religion. Bill Gates is worshipped as a god of philanthropy. He should be worshipped as a ruthless monopolist.

Corporations are inherently hierachical. They are authoritarian structures within a supposedly democratic republic. When happens when an authoritarian structure runs a democratic republic? The democratic republic only exists to hide the authoritarian structure.

The structure uses the tropes of a DR to cloak itself in the skin of equal opportunity.

Where do the American people fit in this scheme?

Take 20+% Pay Cut or Never Be Employed Again (New Economic Theory)

I subscribe to the NY Times and the Wall Street Journal. Today I didn’t get my papers. So I called customer service to request a replacement and I spoke to a very nice girl named Rica. She works in the Phillipines.

The average Phillipine call center worker makes a daily wage of $9 (that's $2250 annually) with some companies forking over $14 a day. This is from a corporate call center website. It's not trying to expose wrongdoing. It's offering instructional guidelines for any company seeking to outsource their customer service.

Yesterday the NYT ran a story under the headline American Wages Out of Balance in their column that starts:

“American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.”

The high productivity that’s raising the boats in the stock market is due to massive layoffs. As to what caused that unemployment, it’s debatable that it was overpaid American workers. Except perhaps in the financial sector.

Goldman Sachs is going to pay out the largest bonus pool in its 140 year existence and the rest of the few financial monoliths will do the same. In other words, the financial sector which now has less competition than ever and free credit lines from the government will be rewarded handsomely for creating and leveraging phony assets, spreading them around the globe and getting bailed out by the American taxpayer. Are they worth the money? And how much more will they make in the future?

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.
"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

The implied threat here is that unless the American labor force takes an average pay cut of 20%, we will achieve levels of unemployment similar to the first Depression. I got news for you, Edward Hadas, Martin Hutchinson and Antony Currie (the writers of this analysis, which I’m sure will be adopted by many firms sitting on mounds of cash and still not hiring), we’re already there.

Thursday, November 5, 2009

Get High--Save the Economy!

Ever since the Justice Department announced it would no longer raid medical marijuana dispensaries, the stores have been growing like weeds. 14 states have medical marijuana laws on the books.

Colorado now has over 60 stores from less than two dozen in January. The ganjapreneurs are advertising in local papers. And other budding businesses are thriving alongside them.

As Mark Van Grack, owner of Hapa Sushi in Boulder says :

If you're going to smoke pot, you're going to get the munchies, so come to Hapa to eat.

In July, 80% of the voters in Oakland, CA passed a law taxing medical marijuana dispensaries at the behest of one of their biggest ganjapreneurs.

"It is important because the city of Oakland is facing a massive deficit like many jurisdictions in California, said Steve DeAngelo, a leader of one of the city's cannabis clubs. "And we decided to step up to the plate and make a contribution to the city in a time of need."

DeAngelo, one of the people who led the effort to get the tax approved, said his business will now have to pay more than $350,000 from the new tax next year.

Legalizing the plant may alter side effects of illegal marijuana activity such as cutting into the profits of the Mexican drug cartels. Didn't that happen after Prohibition?

Not all side effects of the medical marijuana business are known. But add-on businesses and greater tax revenue can ease a lot of pain.

Sunday, November 1, 2009

Ayn Rand's Revenge

Under the headline "Ayn Rand's Revenge", The NY Times put a bio book,”Ayn Rand and the World She Made” on the cover of its Book Review today. It seems that only the Bible sells more copies per year than her magnum opus of unfettered, soaring phallic power. To quote from her hero, John Galt:

“We have granted you everything you demanded of us, we who had always been the givers, but have only now understood it,” Galt lectures the “looters” and “moochers” who make up the populace. “We have no demands to present you, no terms to bargain about, no compromise to reach. You have nothing to offer us. We do not need you.”

According to this article, Atlas Shrugged is the favorite tome of the right. Casting aside the believability that tea baggers and Glen Beck have actually read her 1000+ page book, Rand’s Objectivist philosophy as embodied by Galt is perfect for both Wall Streeters and people who shout, “Don't let the government touch my Medicare” alike. Basically, one could be a member of the elect and victimized by the effete elite without any distinguishing characteristics beside devotion to Ayn. The woman who despised the masses and collectivism built a massive cult around herself and it’s more powerful than ever.

(By the way, the obscure company that did cleanup on the ill-fated Deutsche Bank building was named after the broad-shouldered hero of AS, known as the John Galt Corporation. Two firefighters died there in August 2007 trapped in its ruins because John Galt Corp removed a pipe connecting the building to its water supply.)

Two years ago on September 15, 2007, about a month after the Deutsche Building collapsed and killed the firemen, I wrote about another breathless New York Times article regarding the power of Rand:

As America enters an unprecedented time of falling housing prices and widespread foreclosure, I found the article in The New York Times “Ayn Rand’s Literature of Capitalism” by Harriet Rubin interesting.

According to the article, many business leaders, including Alan Greenspan, who is currently flogging his book, The Age of Turbulence, were strongly influenced by Rand’s novel Atlas Shrugged. Greenspan blamed everyone but himself for the credit crisis, although he was at the Fed’s helm when the interest rate was cut to 1% in 2003 and praised adjustable rate mortgages as most efficient.

Wall Street decided to offer mortgages borrowers could not afford simply because they could repackage these loans into mortgage-backed securities, insisting the MBS eliminated risk, and reap incredible fees.

These business leaders were greatly influenced by the book. It is the story of the prime movers of society going on strike because society doesn’t appreciate them; in fact, they are exploited and robbed of their dignity. They refuse to contribute their inventions, art, business leadership, scientific research or new ideas of any kind to the rest of the world.

The view of the prime movers is that society hampers them by interfering with their work and underpays them by confiscating the profits and dignity they have rightfully earned. The peaceful cohesiveness of the world requires those individuals whose productive work comes from mental effort.

But feeling they have no alternative, they eventually disappear from the communities of “looters” and “moochers” who bleed them dry. The strikers believe that they are crucial to a society that exploits them, and the near-total collapse of civilization triggered by their strike shows them to be correct.

The book reflects the mindset of many of those who helmed Wall Street institutions that are now extinct [Bear Stearns, Lehman] or swallowed up [Merrill Lynch] or still have a pulse. To regulate them is to “loot” or “mooch” off them. They are of a superior class; therefore they are entitled to play by different rules, all for the benefit of society.

I don’t think Rand believed that self-interest had to be enlightened to benefit society; all the prime movers like Angelo Mozilo (Countrywide), John Thain (Merrill Lynch), Lloyd Blankfein (Goldman Sachs), Henry Paulson (formerly Goldman Sachs, now sadly our Treasury Secretary) just have to be self-interested and somehow, voila! Wave an invisible hand and society benefits. They took the gold; we the taxpayers take the dross, and none of them accepts responsibility or faces any kind of comeuppance.

I, too, was influenced by literature but not Ayn Rand. She wrote stiff characters who spoke ridiculous dialogue and had romance-novel sex. I suggest these business leaders try another message novel:

The Jungle(1906) by Upton Sinclair
The Jungle is the story of Lithuanian immigrants working in Chicago’s Union Stock Yards at the beginning of the 20th century. It depicts a world of poverty and lack of any social contract, subhuman living and working conditions and generally utter hopelessness prevalent among the have-nots, contrasted with the deeply rooted corruption on the part of the haves. Workers are forced to low-bid their labor in a desperate attempt to compete and survive.

In The Jungle workers are shown falling into meat processing tanks and being ground, along with animal parts, into “Durham’s Pure Leaf Lard.”

The disgusting, fetid, filthy working conditions and exploitation of women and children depicted in the Jungle led to the passage of the Meat Insepction Act and the Pure Food and Drug Act of 1906, which in turn led to the Food and Drug Administration.

What are your favorite message books? Try Sinclair Lewis's It Can't Happen Here (1935) for a glimpse of the future.

Saturday, October 31, 2009

There's Good News & Bad News

The good news is, the real estate market in Manhattan will pick up. More luxury condominions will sell in the half-empty skyscrapers built at the top of the market bubbble.

The bad news is that it's because of the huge bonuses doled out by GS, MS, Citigroup, BofA and JP Morgan Chase thanks to government direct loans and loss guarantees.

The Treasury and Fed never set up loan facilities (TALF, PIP, FDIC) for non-commercial banks before. It's questionable as to whether they even had the authority to do so.

Friday, October 30, 2009

Words to Live By

All that is necessary for the triumph of evil is that good men do nothing.—Edmund Burke

The best lack all conviction, while the worst
Are full of passionate intensity.—W.B. Yeats

The Aggrieved Wall Street Man:

Don’t you understand that you are not a human with feelings we have to consider? You are merely a cog, a commodity to serve the greater good, which is us?

What are the arguments made?
Without us, the financial system will collapse.
There is only capital. No labor necessary.

Thursday, October 29, 2009

Ungrateful Wall Street Disses Obama Fundraiser

The Wall Street recipients of the Obama administration’s largesse are paying him back by withdrawing their fundraising presence.

The firms which received the most bailout money, including Goldman Sachs, Citigroup and J.P. Morgan Chase, will be sending less than a dozen representatives to a major Democratic fundraising event headed by President Obama in NYC. These are the same firms that raised millions of dollars for him during his presidential campaign, during which he spent a record amount estimated at $750 million. They are projected to donate less than a combined $92,000 to this affair.

Ostensibly this is because they are worried about the appearance that their donations will be seen as quid pro quo for their no-strings-attached lines of credit and direct loans. It is also an attempt to tamp down populist anger at the billion-dollar bonuses to be paid out in January 2010 for their 2009 performance, the profits from which were largely due to the backing of the full faith and credit of the United States Treasury.

But they also feel resentful and put upon by the regulatory zeal and tough talk coming out of Washington. As reported in the NY Times:

There is some failure in the finance industry to appreciate the level of public antagonism toward whatever Wall Street symbolizes,” said Orin Kramer, a partner in an investment firm who is a Democratic fund-raiser and one of the event’s chairmen. “But in order to save the capitalist system, the administration has to be responsive to the public mood, and that is a nuance which can get lost on Wall Street."

Dr. Daniel E. Fass, another chairman of the event who lives surrounded by financiers in Greenwich, Conn., said: “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.” Dr. Fass added, “How much that will be reflected in their support for the president remains to be seen.”

To expect a quid pro quo was understandable. The enormity of the assistance provided to the financial sector is estimated at $12.9 trillion and counting.

Now that the firms have gotten what they sought (explicit government backing for any future losses, loud proclamations that the worst is over, loss of urgency for meaningful change), Obama no longer is useful. Because the strength of the sector lies in the bets it makes for its own benefit, Wall Street has probably placed its bets elsewhere, perhaps even further to the right, awaiting the inevitable change of guard in the face of continuing American human misery.

Wednesday, September 23, 2009

Did the U.S. Give Up On The American Worker?

Red China is doing a better job with Keynesian economics than the U.S. They goosed their deep recessionary economy with a boatload of money; voila! they're coming out of it. Not only that, the Chinese government demanded that the banks receiving bailout money lend to businesses and consumers. Ostensibly, that was one theory behind TARP (the act to reward plutocrats). But lending is declining. Banks are holding onto the money and raising fees on strapped businesses and consumers. Credit is still hard to come by, except, of course, for the "too big to fail" institutions sucking at the taxpayers' teat.

The N.Y. Times does a great job of describing the difference between U.S. plutocracy and Chinese communist capitalism in Recovery Picks Up In China As U.S. Still Ails

[When Chinese]...authorities urged bank executives to lend, the total value of loans outstanding shot up more in the first seven months of this year than in the previous 24 months.

By contrast, total loans and leases outstanding at financial institutions insured by the Federal Deposit Insurance Corporation actually fell $249 billion, or 3.2 percent, in the first half of this year.

Though Washington has used taxpayer money to bail out American banks, it does not have Beijing’s power to force banks to lend that money to businesses and consumers.

(By the way, aren't we major shareholders in all these financial institutions? Obama is a socialist all right...a corporate socialist.)

Meanwhile, here in the good ole U.S. of A., Ben Bernarke our intrepid Fed Chairman and little Timmy (bank baby) Geithner our Treasury Secretary declare that "we're officially out of the recession." That's because all our guys count are the banks. In the White House letter released to the G20 in advance of the conference in Pittsburgh this week (tip jar to Greg Palast of Huffington Post) it's clear that the only thing the administration cares about is that equity markets have increased 35% and other indicators favorable to the financial sector. Unemployment is only mentioned as dampening consumer spending.

Meanwhile, U.S. unemployment keeps rising. China actually cares if its citizens are employed. Why is that? Well, they riot when they're not working (and even burn down factories and kidnap a few executives). The U.S. worker doesn't.

The plan for cash-rich U.S. companies seems to be, ignore the U.S. consumer because after all he/she has no money and turn their eyes overseas to healthier markets, like China.

Saturday, August 29, 2009

The Coming Right Wing Deluge

Checking the 8/30/09 NYT Book Review Section, I noticed that 3 out of the top 5 bestselling hardcovers were from right wing fanatics (or "wingnuts", in the left of the left parlance). #1 was Michelle Malkin's Culture of Corruption, from Regnery, the publisher of all illiberal screeds. As the gentle NYT plot writer for the Non-fiction Best Seller list described its contents: "President Obama and his team as tax cheats, petty crooks, influence peddlers and Wall Street cronies." #3 was Mark B. Levin's Liberty and Tyranny, "[a] conservative manifesto from a talk-show host and the president of Landmark Legal Foundation. Rounding up the top 5 was Dick Morris and Eileen McGann's Catastrophe, which exhorts all to "[s]top President Obama before he transforms America into a socialist state.

This is a fearsome development. Aside from the astonishing fact that there are enough wingnuts to shell out around $27 and possibly even read a hardcover book, the trajectory of political discourse looks distinctly right of the horizon. I'm afraid of the rise of a populist demagogue who truly wishes to take over the reins of power. Right now I'm reading Senator Joe McCarthy by Richard H. Rovere, written in 1959, merely 5 years after McCarthy was brought down and two years after his sodden death. Sodden, not sudden. He was a drunk. But never mistake his ability to influence policy through his fabricated accusations. Everyone in the political arena, including Presidents Truman and Eisenhower, was afraid of him. Luckily (according to Rovere) he didn't seek political power; he merely wanted glory. Once he'd achieve his objective (say, getting a minor clerk in the State Department dismissed because he was noted in the bibliography of a red-tinged person), he'd drop the entire matter.

But what if a populist demagogue actually wanted to seize the reins of power on a national and international scale? A leader doesn't have to be an elected official. Father Coughlin? Rush Limbaugh? As the common man trudges through the Great Recession with nary an unfilled job in sight, people are disgruntled, frustrated, and filled with loathing and hatred. And packing heat. It doesn't matter how imbecilic the accusations against Obama and his administration are: that he's an illegitimate president, a socialist (if he's a socialist, then Lloyd Blankfein, head of Goldman Sachs and flash trading, is a dyed-in-the-wool Communist) and is planning to convene "death panels" to force the disabled, unwanted and elderly into euthanasia. The hysteria of Sarah Palin's original rallies have degenerated into Town Hall hate-a-thons. And Congress says nothing.

Tuesday, August 18, 2009

Recession Is Over. Or It Isn't.

Fed Chairman Ben Bernarke et al are hailing the end of the longest recession since the Great Depression. The Great Recession began in December 2007. Now, according to them, it's over. Many companies have reported better than expected earnings 2 Q '09. To be exact, 73% of the 427 companies in the S&P 500 that have reported earnings have beaten expectations.

Economists love history and statistics. In past recessions, when productivity reached a certain level, prosperity was just around the corner. But what if a recession is ahistorical, like this one? What if it has no precedent?

Don't accept statistics on faith. In the face of rising unemployment and foreclosure rates, what accounts for these profits?

If you weren't sure of the utter falsehood that what's good for Wall Street is good for Main Street, all you need to do is look at the worker productivity numbers for 2 Q '09. Productivity is the measure of what the economy produces per worker hour. And productivity at the end of June was the highest it's been since 3 Q '03, an annualized pace of 5.5%.

The profits didn't come from producing more stuff that more people wanted to buy. It came from merciless cost-cutting. Instead of 3 people doing the work of 3, 1 person does the work of 3. Easy math. Productivity zooms upward by 300%.

As reported in the WSJ:

The net result: rising unemployment, stagnant wages, sagging consumer confidence--and better than expected corporate profits.

Higher earnings and stock prices are supposed to induce companies to invest their capital and hire more. At least that's how it worked in the past.

But this Recession is the Mother of Them All. Achieving profits on the backs of their workers in a country where consumer spending accounts for 70% of GDP won't help Main Street and the economy beyond Wall Street at all. Certainly it won't increase consumer demand. The question is, will business invest? Will the private sector make up for lower consumer demand and a smaller-than-necessary government stimulus?

The jury is out on those questions:

In a classic economic recovery...rising profits and stock prices help make the recovery self-sustaining by encouraging companies to hire more workers.

What is still in doubt, though, is whether this is a classic recovery.

Tuesday, August 4, 2009

Timmy Gets Mad

In today's WSJ, someone inside the room leaked. Before a group that included Fed Chairman Ben Bernarke, SEC commission chairman Mary Schapiro and FDIC Chairman Sheila Bair, Treasury Secretary Timothy Geithner cursed like a sailor as he yelled at the assembled financial regulators for not getting on board with the plan to have the Federal Reserve grab total oversight power over all financial entities.

Sunday, July 19, 2009

What the hell does "jobless recovery" mean?

What exactly does a jobless recovery mean? Isn’t that an oxymoron like “military intelligence”?

The article by Louis Uchitelle in the Sunday NYT 7/19/09 Week in Review section with the exclamation capital letter headline, “When, Oh When, Will HELP Be WANTED”, asserts that we are entering a time of economic expansion; the worst is over; but where are the jobs? No expert economists this time are weighing in. Some mumble, no sooner than next summer, “a guess, verging on wishful thinking.” Seems that because jobs are shed monthly at ½ million of so (or as numbers crunchers would say, less bad than before) and people are in debt, the GDP which depends on 70% consumer consumption, will not revive very soon. Until it does, the manufacturing and construction sector will continue to lose employees. What’s supposed to happen and what has happened in the past is that after a recession ends pent-up demand is unleashed and the engines start roaring again.

However, history is no guide in this recession. It is the Mother of them all, at least since 1929.

The pent-up demand is not present—not with 6.46 million jobs gone in just 18 months and hundreds of billions of dollars in wages extinguished.
Credit is harder than ever to get for those who might want to spend again and there are fewer and fewer spenders.

Of course, since the last 10 years represented a fake expansion based on leverage (especially leverage enhanced by creative structure financial vehicles) and fee-based bullshit (credit rating agencies, bond issuers, mortgage originators all profited handsomely during the housing bubble), there is no pent-up demand. The only signs on the dim horizon are adding hours to the employees who’ve had their hours cut.

The estimates of job creation for the stimulus package (Mark Zandi, chief economist at Moody’s is 2.5 million jobs, not much considering we’ve already lost nearly 2 million jobs since the package was announced in February . Don’t forget that new people try to enter the workforce on a continuous basis (recent college graduates, new citizens, etc.), so the need for new jobs is greater than just making up the losses.

So what the hell are we going to do? Don’t depend on the politicians. Both Democrats and Republicans look upon a new stimulus as though it were radioactive, even if that may be the only thing to put ordinary people back on the rolls:

Such numbers suggest that if the goal is a job surge coming out of the current recession, then another stimulus package is needed, and a big one, perhaps as much as $1 trillion packed into a single year of spending, some economists say. Consumer spending and business investment provided such a kick coming out of steep recessions in the past.

But that’s not in the cards. No way. America worships money and ideology in whatever order. The politicians want to get re-elected and the powerful lobbyists in the FIRE (Finance/Insurance/Real Estate) sector want to write the laws for them, so we the common man/woman can only expect a trickle of jobs and a whole lot of belt-tightening, death by health insurance and untold misery. But do not fear: economists have found faith, not unlike my childhood faith in Tinkerbell’s resurrection:

There might even be a surprise, adds Robert Barbera, chief economist for the Investment Technology Group. “Some new and exciting area of job growth may emerge,” he said, “although I can’t guess where that may be.”

Friday, June 26, 2009

Derivatives: The Devil's Handiwork

Floyd Norris' article, "Derivatives Tug of War Takes Shape" is a discouraging look at how hard the derivatives industry is fighting any kind of regulation, particularly having to be traded on an exchange where prices are transparent and companies will actually have to put up some collateral for the risks they take then fob off on some unsuspecting mark. It's all gambling on a massive scale.

“Simply put,” said Richard Bookstaber, one of the pioneers of financial engineering on Wall Street, “derivatives are the weapon of choice for gaming the system."

Mr. Bookstaber wrote one of the best books about the causes of the financial crisis, “A Demon of Our Own Design,” and did so before the crisis erupted. This month, his testimony to a Senate subcommittee provided a stark lesson in the uses to which derivatives have been put.

“Derivatives,” he testified, “provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored.” They let institutions dodge taxes and accounting rules.

“Viewed in an uncharitable light,” he added, “derivatives and swaps can be thought of as vehicles for gambling; they are, after all, side bets on the market.”

And they were side bets that could destabilize the markets. Had American International Group been gambling in regulated markets, it would have been required to put up collateral when prices began to go against it. Instead, it was able to ignore the problem until its own collapse — and perhaps that of the financial system — was imminent.

As he put it, and as I saw in CNBC's show "House of Cards", the pirates use derivatives to transfer their risk to those who don't understand it. I was appalled listening to Alan Greenspan talking to the CNBC guy. He was basically saying there was nothing the Fed could do to stop the madness. You can't put the brakes on a bubble because that would destroy the economy and profitmaking. He's saying all this, that damned Ayn Rand suckup, while sitting in the midst of the wreckage. The profits were all phantom, except for those piled up by financial wizards who got paid upfront and left before everything crashed.

But the destruction spread far beyond the Wall Street borders and subprime mortgages. Right now we're looking at at least 11% unemployment by the end of 2009 (and it's gotta be more than that; I think it's already gone up 1.5% since April). And this is the official unemployment rate, which doesn't include the underemployed or those who have given up looking.

The sadness is that it will all be blamed on Obama and we'll get some horrible Republican in the White House in 2012.

Such a transfer of wealth from the not-rich to the rich.

Sunday, May 31, 2009

The Experts Don't Know What's Going to Happen...

...but they kind of agree about what did happen. A panel put together by the New York Review of Books was held on April 30, 2009 @ The Metropolitan Museum of Art. The discussion was transcribed in its latest issue (6/11/09), How To Deal With the Crisis. The panel included such luminaries as Bill Bradley (U.S. Senator-NJ (D) 1979-1997; managing director at merchant bank Allen & Co.), Niall Ferguson (Professor of History @ Harvard, Senior Fellow @ Hoover Institute), Paul Krugman (but of course, just awarded the Nobel last year), Nouriel ("Dr. Doom") Roubini, doomsayer extraordinaire (Distinguished Professor of Economics @ NYU Stern School of Biznez and Chairman of RGE Monitor, George Soros (Chairman of Soros Fund Management LLC, well-known macroeconomic trend cruncher and legacy builder, who is distinctly unhappy with the "free market paradigm"--I think if he met John Galt, he'd spit in his eye) and Robin Wells (who co-authored the book Economics with Paul Krugman and made some very astute comments herself.

Ferguson joisted with Krugman, especially about the potential hyperinflationary effects of the government's printing money, not specifically regarding backing up all the bad debt in the financial system but decrying the fiscal stimulus. On the other hand, Paul (who believes that all this talk about hyperinflation is a way to wage war against further stimulus) despaired for the near future of ordinary Americans, which is 99.9% of all of us who are being laid off to the tune of 600,000+ per month.

I thrilled to Paul's thundering words:

The other thing not to miss is the importance of a strong social safety net. By most accounts, most projections say that the European Union is going to have a somewhat deeper recession this year than the United States. So in terms of macromanagement, they're actually doing a poor job, and there are various reasons for that: the European Central Bank is too conservative, Europeans have been too slow to do fiscal stimulus. But the human suffering is going to be much greater on this side of the Atlantic because Europeans don't lose their health care when they lose their jobs. They don't find themselves with essentially no support once their trivial unemployment check has fallen off. We have nothing underneath. When Americans lose their jobs, they fall into the abyss. That does not happen in other advanced countries, it does not happen, I want to say, in civilized countries.

In all the millions of words (along with the trillions of dollars) printed about this re/de/pression started December 2007, the pundits often overlook human suffering.

Niall became sarcastic, invoking the "lessons" of the 1970s:

The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.

What could be more technologically innovative than synthetic CDOs (collateralized debt obligations) built according to mathematical models based on highly fallible projections? Or credit default swaps? Or securitization? And everyone agrees they are at the heart of this horrible economic disintegration.

As far as productivity goes, well, when you fire 4 out of 5 people in a company, that one person has to pick up the slack and eureka! productivity soars. So don't worry, Niall. Unemployment will continue to grow.

Friday, May 15, 2009

The Only Value: Credibility

In an age where everyone is a sell-out, the only value becomes credibility. It's so rare.

Friday, May 8, 2009

Teach Me To Communicate to the Internet Generation

I am totally out of touch. After becoming a casualty of the Re/Depression (my consultancy was lopped off the FY 2010 budget), I decided to utilize my lengthy career placement background and academic prowess (I graduated with top honors in English from college with a 1390 SAT dating back decades). I'd help people get jobs and tutor high school students in the SATs and edit college or graduate school papers with grammar and coherence in mind. So far my clients have gotten As. I didn't go whole hog and sign up with an online broker to write the term papers myself for a hefty fee.

However, I'm having difficulty communicating by email with prospective clients. This is a standard email exchange from a youngster in response to my ad:

hey my name is [young person] and ii saw your ad for career advisement and was just interested in knowing what you can do for me??
thank you for your time and ii will be waiting for your reply.

So I respond:

I can help you write your resume, cover letter, and thank you note. We can practice job interviewing (very important). I can teach you how to search
for jobs and network. I have a lot of experience in this area.

You let me know what you need. My name is [Cassandra].

He writes back:

ii juss need a job.. basically.. I have a resume and everything

So I put the pedal to the metal [that probably ages me, too]:

I can look over your resume and see if it'll lead you to a job. Does it
display your qualifications well? Do you tell potential employers what you
can do for them? What kind of job are you looking for? You have to sell
yourself in a different way for a different kind of job. If you want an
office job, what kind of computer skills do you have? If you want a sales
job, how are you in person or on the phone? If you want a retail job, are
you good in customer service? Are you a team player? Do you have any
professional experience?

After you figure out the answers to these questions, then you can go to
internet job search engines, upload your resume and check it out.

And he comes back with:

okay well maybe you can help me, I'm 19 years old attending CUNY York
College in jamaica. I have experience in hospitality, considering the fact
that ii worked in a restaurant in manhattan as a Banquet busser/waiter. I
attended Queens Vocational Technical High School and gained experience in
electrical installation, therefore I have basic knowledge in the
electrical field. I received my Regents diploma and completed internship
in electrical installation, in college my major is Physicians Assistant,
I'm trying to pursue a career in the medical field. I have my license for
Phlebotomy and EKG tech. I am certified by NHA and am currently doing
Internship at a medical office in elmhurst queens.
If any of these qualities are helpful to obtain a job, please contact
me and I seriously need help finding a job especially during these tought
times. I will be awaiting a reply. thank you.

I reply:

You have a lot of education and experience that can be presented well to a potential employer. I have some ideas for you. This is the way I work: I
meet with you and go over your employment materials, focusing on how you can
put your best foot forward to make the most of the chances you get. Most
resumes and cover letters are not very good or effective. Most people have
no idea how to act in a job interview. One mistake can change an employer's

I've been doing this for a long time. Consider it an investment in your
future. My fee is $20 per hour for students.

And the coup de grace (his response):

lol no thank you..

I am a dinosaur reared on reading books, absorbed in their meaning, soaking in language. I've placed all sorts and sizes of people in jobs, including executives and those with disabilities (known as "barriers to employment"]. I come with a pedigree. But I am out of touch with the prevailing winds.

I'm not saying I have to dumb down. But I have been doing this work for a few months now and I constantly say to myself (aside from "Stop talking to yourself!"), will this person be put off by proper grammar? Or words like "available"? Or punctuation without emoticons ):?

How can I learn to write blog? Or email? Or IM? Should I forget everything I've learned? Should the Constitution be rewritten according to Twitter, to make it comprehensible to the majority?

I'm not saying I'm impervious to the degradation of anonymous immediacy provided by the internet. I'm much more impatient, nay, impulsive, telling the computer "c'mon!" as it boots up too slowly for me, tossing off a retort with a click of the SEND button rife with spelling errors and tortured meaning. I haven't written anything in a haze of drunken vengeance. But the shame!

Thursday, April 30, 2009

I was the only Editor's Choice on Leonhardt's NYT article

...with the most readers' recommendations:

Time For Bank Creditors to Share the Pain? in Leonhardt's Economic Scene column.

Comment #21.

EDITORS' SELECTIONS April 29, 2009 2:24 pm

Let's not fool ourselves: Obama hired Summers and Geithner. He said to you airily when you soft-balled him that there are others besides the Wall Street Clinton brain trust involved in saving the U.S. economy. Who? Paul Volcker, who was trotted out for a photo op back during President-elect times and hasn't been heard from since?

The idea that the guys who created the destruction are the best for reconstruction is like saying because a fox knows how to kill a chicken he's the best one to keep it alive.

Geithner is bypassing Congress (taxation without representation indeed) by doling out money from the Treasury.

In any case, the idea that printing money out of thin air and shoveling it into the gaping maw of failed institutions will somehow unfreeze credit is belied by a rival publication on 4/20/09 (you'll print this, right, even if I quote another source--I know you've covered this story also):

"According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program."

The former chief economist of the IMF, Simon Johnson, believes that the oligarchs (or "overlords") of the financial institutions have already assumed the reins of government. Basically they own the Treasury.

Witness Geithner's brilliant plan to remove toxic assets with a trowel by subsidizing unregulated, opaque industries like hedge funds/private equity firms to purchase such assets and indemnifying them from any losses. Again, lemon socialism: privatized profits, socialized losses.

Don't be fooled by a pretty face. All that matters is policy. We're already past the tipping point to change the economic paradigm. Banks are reporting profits (who wouldn't, with cheap money thrown at them) and want to wiggle out of their obligations to the shareholders (us).

Let's see if banks represent an opportunity to private capital without a government guarantee. If not, public capital should demand its due. To paraphrase Arlen Specter, "there should be an uprising."

— Kathi Berke, New York City

Recommend Recommended by 13 Readers

Tuesday, April 7, 2009

Europeans are Noisy and Angry, While Americans Man the Internet Barricades (those Twits!)

I've read a number of articles lately questioning why Americans aren't angry in the face of economic hardship and injustice whereas the Europeans take to the streets. A NY Times article by Steven Greenhouse, their labor reporter, offers a dispiriting narrative between the lines. As opposed to the photo, which actually has the caption "THEM" under a crowd of angry European workers protesting in the streets, the picture of American labor is far more tame and sobering.

One assertion is that our government is more trustworthy.

Greenhouse quotes Leo Gerard, president of the United Steelworkers union, who said, "I actually believe that Americans believe in their political system more than workers do in other parts of the world." He said large labor demonstrations are often warranted in Canada(!) and European countries to presure parliamentary leaders.
I'll come back to him later.

Americans are also proud of their rugged individualism. Mentioned but barely emphasized is the downside of an American society built on individualism as opposed to community: shame. If rugged individualism is the guiding principle of success, then you are solely to blame for your misfortune. Your fate has nothing to do with socio-economic forces, only your own failings.

Greenhouse quotes David Kennedy, a historian of the Depression-era time period up until WWII, who cites a 1940 study by social psychologist Mirra Komarovsky, whose interviews of the Depression-era unemployed found "the psychological reaction was to feel guilty and ashamed, that they had failed personally."

This sentiment is currently borne out in a quote from a article about people moving back with relatives because they've run out of money and options. The following anecdote from the story is about Pam Wilson, a 37-year-old social worker who had made $60,000 and shared a home in Kentucky with her mother:

After unsuccessfully looking for work, depleting her $25,000 in savings and exhausting her unemployment-insurance benefits, she realized she and her mother couldn't afford to live on their own. So she made the difficult decision for them to move back to Georgia to live with her two sisters. The four women share the house.

Ms. Wilson and her mother share a queen-size bed. Ms. Wilson cooks and says she sometimes does extra things around the three-bedroom house like making her sisters' bed, or taking out the trash.

"You just want to make sure that you're not perceived as some type of burden or freeloader," she said. When company comes over, she feels like she might be in the way and retreats to her room. She knows she is welcome, but can't help feeling ashamed.

Not only is conflict muted by shame, there's also fear. Not merely of murderous strikebreakers, but of future consequences.

When desperation and anger finally overcame shame during the thirties:

[W]orkers' protests increased in number and militancy. They were fueled by the then-powerful Communist and Socialist Parties and frustrations over continuing deprivation. Workers also felt they had President Roosevelt's blessing for collective action because he signed the Wagner Act in 1935, giving workers the right to unionize.

From Wikipedia:

The National Labor Relations Act (or Wagner Act) is a 1935 United States federal law that protects the rights of most workers in the private sector to organize labor unions, to engage in collective bargaining, and to take part in strikes and other forms of concerted activity in support of their demands.

When WWII was over and relative prosperity returned, fueled by unionization and big government programs like the G.I. Bill, Congress used the left leaning sentiments of those involved in collective action in the thirties during the House UnAmerican Activities Committee and McCarthy hearings as a cudgel to consolidate power against the overblown threat of the Communist menace (not unlike the fearmongering of the Bush-Cheney years). People who joined collective movements in the thirties were branded as traitors and were blacklisted and imprisoned.

Reagan put the final nail in the coffin of unionization by firing all 11,500 air traffic controllers on strike in 1981.

But the numbers tell the story: Last year, American unions engaged in 159 work stoppages, down from 1,352 in 1981, according to the Bureau of National Affairs, a publisher of legal and regulator news.

Many opinionators in Greenhouse's article spout the party line that Americans are more effective in their internet protests, using energy otherwise wasted in angry, noisy demonstrations. However, this belief (that the internet, or virtual activity, is equivalent to collective action) may be a way to divert attention and let the vox populi think they're actually making a difference.

The most hilarious statement in Greenhouse's article comes from Gerard. (See, I told you I'd mention him again. Now go back in the article and find the first mention).

Demonstrations are less needed in the United States, he said, because often all that is needed is some expert lobbying in Washington to line up the support of a half-dozen senators.

If "expert lobbying" is what's needed to right outrageous wrongs, then big corporations must be ecstatic as they pour millions of dollars into campaigns and strategies to shut down the Employee Free Choice Act.

The Act, which would allow workers to join a union automatically upon employment, is discussed succinctly in David Frieboth's article in the Seattle Times. He lays out the competing narrative against the Act (it bars secret elections, it takes away individual choice) and addresses the realities behind the need for the Act. Employers protest that unionization is well-protected under current law. Freiboth politely disagrees.[My apologies to you, David, for taking so much of your content, but I feel your work is invaluable.]

Scare tactics that highlight problems with union intimidation during organizing campaigns are just that — scare tactics — designed to subvert the essence of the issue.

Problem is, the current law that protects workers' freedom to choose to bargain collectively has been perverted. When faced with a union organizing drive, 25 percent of companies fire the "ringleaders," according to the National Labor Relations Board.

Although this practice is technically illegal, the bar for proving union-organizing discrimination is so high and the penalties so low that when workers express a desire to unionize they are, in effect, risking their livelihoods.

In addition, employees who want to form unions are often threatened with plant closings, offered bribes, spied on and intimidated, according to the Center for Economic and Policy Research. The result? Only 8 percent of private-sector workers actually belong to unions, even though 58 percent of U.S. workers say they want a union in their workplace — the highest percentage in 25 years — based upon a report by the independent researcher firm Hart and Associates.

I only hope that President Obama (who voted for the original act while in the Senate) can persuade Congress to resist the lobbying currently muddying the Washington swamp, an activity that a major labor leader says is all that is needed to achieve goals to strengthen labor in a time of escalating unemployment and makeshift Hoovervilles.

Saturday, April 4, 2009

Larry Summers Should Be Fired. Now.

The escalating official unemployment rate made the front page of both the Wall Street Journal and the New York Times. Above the fold. It went from 7.6% in January 2009 to 8.5% in March 2009. Many economists predict the jobless rate to rise above 10% by later this year.

The Wall Street Journal article modifies the official rate further:

A broader gauge of unemployment--which counts Americans who want work but quit searching and people who want full-time jobs but settled for part-time work--climbed to 15.6%.

But Larry Summers, the director of the White House's National Economic Council, isn't worried. The stock market has improved. He can see spring coming:

"You couldn't find any sprouts of green. Now while the statistics remain very mixed, you can find some sprouts of green.

But we must be realistic, says he:

Mr. Summers said he expects several more months of payroll declines, noting, "it now appears fairly clear that the economy is going to be losing jobs at a substantial rate for some months to come."

One reason Summers may not be too concerned about unemployment woes, particularly his own, is that also according to today'sNew York Times, he earned more than $5 million last year from the hedge fund D.E. Shaw and $2.7 million in speaking fees to Wall Street firms that received government bailout money:

Last year, he reported making 40 paid appearances, including a $135,000 speech to the investment firm Goldman Sachs, in addition to his earnings from the hedge fund, a sector the administration is trying to regulate.

Mr. Summers's role at the White House includes advising Mr. Obama on whether--or how--to tighten regulation of hedge funds, which engage in highly sophisticated financial trading that many analysts have said contributed to the economic collapse.

It is a sick joke to pretend that the Obama economic team is concerned with Main Street. Summers, despite anything that comes out of his mouth, has worked very hard to preserve the bailiwick of Wall Street.

Back in the waning days of the Clinton Administration, Larry Summers fiercely opposed the regulation of derivatives such as credit default swaps, which are at the center of this man-made economic debacle, according to the blog of The Sunlight Foundation, which is dedicated to transparency/

The chairman of the Commodity Futures Trade Commission (CFTC) Brooksley Born issued a first call for her regulatory commission to have power to oversee financial derivatives.

Her credo was, "An unregulated derivatives market could “pose grave dangers to our economy.”

While previous legislative attempts had been made earlier, Born’s efforts were the most direct and threatening to the financial industry. During an April 1998 meeting of the President’s Working Group on Financial Markets, Federal Reserve chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin (and later Secretary Larry Summers), and Securities and Exchange Commission (SEC) chairman Arthur Levitt opposed Born’s efforts and attempted to derail her.

Not only did Summers object to the regulation of financial derivatives and credit default swaps, he worked hard with Phil Gramm as the driving force on the Commodities Futures Modernization Act, which exempted swaps and derivatives from regulation by both the CFTC, which had already implemented rules that it would not regulate swaps and derivatives, and the SEC. The final version passed in December 2000, barely a whisper amid the tumult of the 2000 election.

This is the fox guarding the hen house. Unless the U.S. economy gets help from the bottom up instead of the top down, we are in for a long fall. We need someone like a special prosecutor to investigate the causes of this calamity that is only deepening. We don't need the architects of destruction to be in charge.

Sunday, March 29, 2009

The Government Investigates U.S. Torturers (the Spanish Government, that is)

Rachel Maddow has been calling for it, along with Jonathan Turley, the constitutional lawyer and MSNBC pundit. What is it? The prosecution of those responsible in the Bush administration for giving a flimsy legal basis for the torturing of thousands of "enemy combatants". Finally, there is going to be an investigation as reported in the New York Times, but it doesn't emanate from the Obama administration. The preliminary moves towards prosecution are coming from Spain.

A Spanish court has taken the first steps toward opening a criminal investigation into allegations that six former high-level Bush administration officials violated international law by providing the legal framework to justify the torture of prisoners at Guantánamo Bay, Cuba, an official close to the case said.

The case, against former Attorney General Alberto R. Gonzales and others, was sent to the prosecutor’s office for review by Baltasar Garzón, the crusading investigative judge who ordered the arrest of the former Chilean dictator Augusto Pinochet. The official said that it was “highly probable” that the case would go forward and that it could lead to arrest warrants.

Friday, March 27, 2009

Clash of Titans

I can feel the swollen monster push of two clashing forces; they're not quite against each other but not quite for. That would be the giant "too-big-to-fail" (TBTF) firms versus Geithner, the Treasury Secretary with his new plan to rein in the companies that dragged the world down into Depression 2.0 and rage-filled violence, at least in Europe.

LONDON — Tempers are flaring across Europe as the economic pain deepens and more people lose their jobs.

On Wednesday, the suburban Edinburgh home of RBS’s ex-chief was damaged.

Just ask Fred Goodwin, the former chief executive of the ailing Royal Bank of Scotland, whose house and car were vandalized early Wednesday. Or Luc Rousselet, the manager of a 3M factory in France, who was barricaded in an office for a second day by workers demanding better severance packages for 110 employees who are being laid off. Or Luc Rousselet, the manager of a 3M factory in France, who was barricaded in an office for a second day by workers demanding better severance packages for 110 employees who are being laid off.

American financial wizards who thought up securitization as a vehicle of greed and convinced themselves (or else didn't care about the consequences-who looks that far ahead?) that the process eliminated risk,actually promoted risk and brought down the houses of cards that was the mighty financial sector. The pile of leverage they created burst. It destroyed trust, killed the credit market, shut down perfectly good companies that couldn't roll over their debt, raised the unemployment numbers like a bottle rocket and drove people from their homes into tents, like the Hoovervilles of the Great Depression. (Isn't it funny how it probably will no longer be known as the Great Depression, just as the Great War just became World War I, one in a series), I quote from yesterday's NY Times:

As the operations manager of an outreach center for the homeless here [Fresno, CA], Paul Stack is used to seeing people down on their luck. What he had never seen before was people living in tents and lean-tos on the railroad lot across from the center.

“They just popped up about 18 months ago,” Mr. Stack said. “One day it was empty. The next day, there were people living there.”

Geithner proposed a new plan to regulate the behemoths. The market is down today. When he unveiled his TALF-on-steroids plan the other day, the market climbed over 400 points. The bold-faced names behind Obama's economic steerage are Wall Street-friendly (Larry Summers, Tim Geithner himself) and the market responds like an EKG. Give us the taxpayer-backup on the worthless ("toxic") securities and we love the thought we'll make trillions. Tell us we have to be reined in and we growl, chomping off big pieces of common equity. Who's running the show, anyway?

Saturday, March 21, 2009

Forget the Bread Line, Now It's The Job Fair Line

Floyd Norris, a business columnist for the New York Times, sternly lectured us in his column today that we should grasp the reality of our lost trillions and permanently shrunken economy with attendant extinction of jobs and adapt to a new downwardly trending lifestyle

Okay, I've done that. I'm an intelligent, articulate, multitasking professional with a powerful academic and business background. By August 2007, I knew the economy was going to take a disastrous fall. I took all of my money out of equities and put it in Treasuries. I paid down my debt. I predicted company deleveraging and the shedding of jobs, because cutting labor is the quickest and easiest way to cut costs. I became a consultant, paid for my own health insurance, and tried to adapt to any contingency. I knew how to maximize value without investing capital. Yet I still lost consultant jobs, one after another.

I've had to make plenty of socioeconomic and psychological adjustments to my downward spiral. All I want is hope for new employment. I need and love to work.

Norris is wrong to say that most of us, the "poorer", those losing their jobs, their homes and their equity on an escalating basis, are in denial. We're somewhere mired in the 5 stages of grief: denial, anger, bargaining, depression and acceptance.

In Susan Dominus's article, also in today's Times, illustrates this perfectly with a quote from one Arthur Bernstein, a recruiter from Bramson ORT College who manned a booth at a NYC job fair yesterday where the line for applicants wound its way down a cold, dreary street way before it opened at 11 am. He was trying to drum up students but many of the attendees thrust their resumes at him, hoping for a position.

"This situation," he said to no one in particular, "is really sick."

I got news for you, Floyd. Out here we know the score. It's in DC and Wall Street, those overlapping bubbles, that permanent denial lives on. That's where lifestyles haven't changed even though these are the people responsible for all the destruction. Robert Rubin and Larry Summers blocked the regulation of derivatives during the Clinton administration, yet they've come back to oversee the collapse. Politicians whose hands are in the pockets of financial lobbyists shred any rules that might interfere with permanent employment. They are millionaires. They have free health care. They have large pensions and golden parachutes. The financial institutions are on government life support which allows them to continue their lavish lifestyles.

I hear a lot of heated rhetoric but I don't see any strings attached or iron-clad laws passed against fraud and criminality. The credit rating agencies that gave out the triple-A ratings to the worthless mortgage-backed securities because they were paid by the issuers are still in charge of rating trillions of dollars worth of assets. They are also rewarded for failure.

The overlapping bubbles of DC and finance are sociopathically reinforcing: they are grandiose, and narcissistic without a shred of remorse. And they wonder why there is populist rage. Rage that is nonpartisan.

I am a strong writer. I wanted to be an investigative journalist like Sydney Schanberg or Seymour Hersch, but the Internet with its insatiable desire for free written content (except for and its ability to destroy income for dead tree media leaves few openings for someone to make a living. Does Arianna Huffington pay enough for the Huffington Post to do great primary reporting? Or does the Post steal content from other sources ("not stealing, merely aggregating")? Are we in a drive to the bottom, where writers will have to offer the lowest bid for their services? The NY Times used to pay $750 for an op-ed piece. Now it pays $300.

Is labor in a race to the bottom? Will the taxpayer pay private equity and hedge fund firms to take toxic waste off the banks' hands, thus subsidizing systemic risk and perverse incentives? Is the Pope Catholic?

Friday, March 20, 2009

The Financial System's Maze to Defeat You

I don't have automatic bill paying through my bank because I don't trust banks. My last bank, Washington Mutual, failed. Many people had great difficulty extricating themselves from their automatic bill paying with WaMu, and as a consequence, their bills remained unpaid until they were way past due.

I pay the old way: writing a check, putting it in an envelope, and pasting on a stamp (now 42 cents, will be 44 in May). Generally I send out it out days before it's due. For instance, I paid for my el cheapo, desperation bid Daily News subscription on 3/5/09. Due date 3/8. Because they didn't get it until 3/10, they sent out a past due invoice immediately. My check was cashed 3/12. In other words, there is no way to pay bills on time the old-fashioned way. Yet if you trap yourself with automatic bill paying through a possibly zombie bank, you may get hung up with the over-burdened FDIC (527 banks on the watch list and counting) and the difficulty extricating yourself.

The Post Office is cutting back one day a week and raising the cost of its first class stamps in order to remain in business. Those measure impair its service. On the other hand, banks are failing and wise heads say don't connect your account with your creditors.

So what happens? If you have an arbitrage thinking financial company, they will dart out a past due notice with late fees and finance charges eagerly attached without a breather. There's no way they can lose. They're betting against the post office and you can't prove them wrong. I mean, the Daily News is telling me they got my check a week after I mailed it. Imagine what Bank of America could do to leverage the calendar? Their BoA credit card is the only one I use. I have a large credit line and I've invested the card with sentimental value (it's granted through my alma mater). And BoA is first out of the gate. The instant my check leaves my burning fingers, BoA has cashed it. I don't know how they do it. Maybe they've cracked the time-space continuum.

I try not to use my credit card at all. I'm not going to pay extra and risk my credit score. How does this system of logic help stimulate the economy?

Thursday, March 5, 2009

Things Are Looking Up

Today I traveled into Nueva York and sat in Starbucks on 78th Street & Lexington Avenue, an area rife with young urban professionals. A young man was next to me anchored to his notebook with a cell clamped on his ear. He was talking to someone about trying to eke out a living and how he was going to be there until 5. He didn't sound happy. After signing off, he hunched over his screen and pecked.

On the platform at Grand Central, I noticed two gigantic Norwegian Gray rats scampering around the tracks. They looked happy and well-fed. Not gloomy like the humans present. They chased each other in a knotty arrangement around the tracks jumping skillfully over the third rail.

Meanwhile, the train was coming. Everyone moved back from the edge of the platform in unison to prevent some stranger from pushing them down onto the tracks to give the train a better shot at them. This hadn't happened in a long time but it was threaded into the DNA of every subway rider. Someone will take a dislike to you and shove you off the platform. In fact, every NY Post headline was a part of you, throbbing, directing your unconscious responses. Ignore anyone who is talking loudly. Silently suffer the Mariachi clamor. Step over the crumpled faceless homeless man covered in newspapers lying across the seats.

Don't pay attention to that man talking to himself in the corner. But the problem is, now you can't tell anymore if he's schizo or talking on the phone. Technology has altered our assumptions about reality. Either this guy is crazy and on the lower strata of society, or he's a busy executive (ha! This is Depression 2.0!) multitasking.

The glorious panoply of colorful immigrants, brown, yellow, green, red, white, were all plugged into their iPods. The etiquette of the subway used to insist that no one make eye contact. Now there was no need to enforce the rules. No one was even aware of anyone else.

Tuesday, March 3, 2009

Follow The Money

The Times ran an editorial today about the monster that is the American Insurance Group and the now-tired phrase, "Too Big To Fail". Not only did the Treasury throw more money at AIG, they loosened the restrictions on their prior bailout attempts.

In a joint statement with the Federal Reserve on Monday, the Treasury justified the move, saying that “the potential cost to the economy and the taxpayer of government inaction would be extremely high.”

That’s a textbook rationale for any bailout. What no one is saying — the Bush folks wouldn’t, and the Obama team seems to have taken the same vow of Wall Street omertà — is which firms would be most threatened by an A.I.G. collapse. The Treasury and the Federal Reserve noted in their statement that A.I.G. is a “significant counterparty to a number of major financial institutions.”

That means that by enabling A.I.G. to avert bankruptcy proceedings, the taxpayer is also bailing out — whom exactly?

Sorkin writes about AIG in his column too, only he is more of a man to toe the Wall Street party line. He drones on about the unspoken catastrophe that will occur should AIG collapse:

In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion.

If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.

How we got here is a well-worn tale that others have detailed extensively: A.I.G. used its triple-A rating from the insurance part of its business to run a huge casino that then overwhelmed the entire business.

He disposes of the colossal piracy examined in great extent by his colleagueJoe Nocera, in three words. Two if you count "well-worn" as one. Joe is asking the same question as the editorial: Who is really getting bailed out in the AIG fiasco?

Sorkin pretends that it's the good ole insurance policyholders. He cries, if the U.S. doesn't step in, there will be a run on all that $19 trillion worth of insurance, and the little old lady won't get a deal anywhere else. What he doesn't mention is that nothing will prevent a run on policies in any case, especially if policyholders are leery about the government's plan working. The plan seems to be pour as much money down the bottomless pit of human greed.

Andrew, Andy Boy, don't pretend it's the taxpayers. It's those goddamned counterparties. And who are they? No transparency at all. Are they European hedge funds? Or Goldman Sachs itself, whose CEO Lloyd Blankfein sat in on the original Fed-AIG transfusion plan, and from whom came Hanky Panky Paulson? Haven't all these parties profited hugely from AIG's coy leveraging of its Triple-A rating? If they have (and certainly that can be looked into, I hope) then they should shoulder some (if not all) of the losses. If we, the taxpayers, have to participate forcibly in lemon socialism, why can't they participate in some of the losses? If that kind of deal, that the profiteers must commit to some loss, shakes the foundation of our financial system, then we truly are doomed. Because there has to be a tipping point.

At least Sorkin admits that the Treasury should have taken over 100% ownership. For a man who speaks well of Wall Street (and it is reciprocated--remember, the WSJ tried to lure him away when Rupert first took over the helm) that was a hard thing to claw out of his throat.

Wednesday, February 25, 2009

My brother called me two days ago to say hi and to let me know he was still at Citigroup. I had been predicting Citigroup's demise for 1-1/2 years already. The following is our email exchange (redolent of the times):

Good to hear from you, bro.
>> I'm happy that you're still plugged into Citigroup (the new joke is that
>> =
>> its share price is lower than its ATM fees). I got laid off from =
>> Alzheimer's on Feb 10 (even tho 2 weeks before the prez/CEO said she was
>> =
>> sharing my ideas for maximizing income at no cost with the senior staff;
hope she doesn't use these ideas or I'll be miffed).
>> Jeff also just got laid off (Fri). I've been doing some career coaching
>> =
>> here and there and just started sending out feelers re: different =
>> consulting ideas. At least I don't have any debt and I have savings. =
>> Man oh man this is some global situation. I blame it all on the =
>> internet (as do Roubini and Taleb). Everything was done at once and is =
>> now crashing at the same time. Trading in unison, de-leveraging in =
>> unison, foreclosing in unison and firing in unison is NG. (:.
>> Kathi

From: "Wayne Berke"
To: "Kathi Berke"
Sent: Tuesday, February 24, 2009 8:16 PM
Subject: Re: Victim of Catastrophic Economic Meltdown (ha!)

> Kathi,
> Good one (about the ATM fees). Bummer about you and Jeff getting laid
> off.
> Do either of you qualify for unemployment insurance? Who are Roubini and
> Taleb? Even Wikipedia hasn't heard of them.
Blame it on capitalism with its inherent cycles of boom and bust. It's
> pretty
> similar to a bipolar disorder I think. The higher the highs, the lower
> the
> lows kind of thing. Unfortunately, we're coming off a very extreme high
> (fueled by the Internet among other things). What we should learn going
> forward, if we're smart which we're not, is that regulation is very, very
> important in the financial world. And anyone who starts talking about
> how great it is to rely solely on the invisible hand of the marketplace
> should be summarily shot.
BTW, here's a really cool, artistic depiction of how we got into this
> mess:
> Disaster Capitalism
> Love,

Nouriel Roubini is a professor at the graduate school of business at NYU.
He is also known as Dr. Doom. He predicted the collapse of the housing and
credit market back at some conference (Davos? The IMF Happy Hour?) in 2006
and they laughed at him. Now they don't laugh so much. He is omnipresent.
A rockstar.

Nassim Nicholas Talebis the writer of
"The Black Swan: The Impact of the Highly Improbable" (April 2007). He is
also a rockstar. At Davos, people like Michael Dell and others lined up to
kiss these guys' rings. Taleb's theory basically is that the financial
system pretended that it was eliminating risk by seeking to disregard the 1%
possibility that the house of cards the system was built on could fall over.
He called his book "The Black Swan" to say in essence that just because
every swan you see is white, that does not mean there are no black swans.
And by ignoring that possibility you build in the greatest risk of all,
especially if the scale is massive.

There is an equation known as the Gaussian copula function. It was
formulated by a mathematician named David Li who was trying to reduce
correlative risk to one factor. He did that by measuring credit default
swap costs (the cost of insuring against default), instead of doing the
messy job of considering all the variables involved in, say, one mortgage
pool making up a mortgage-backed security (gauging the probability of
default on the part of each of thousands of mortgage holders, all with
different situations that could all work out very differently in the
future). He merely looked back historically as far as credit default swaps.
CDSs have only really been in existence for about 10-15 years. During that
time housing prices went up, up, up. Li's equation, based on the theory
that housing prices would alway go up, delivered a single number considered
the risk factor. Everyone in the financial sector used this number to
determine the risk in their trades. And guess what, they didn't think there
was any risk!

The managers didn't understand the mathematicians, but they liked the risk
reduction represented by that single factor. The mathematicians loved the
beauty of the equation, but they couldn't see the NINAs (no income, no
assets) borrowers or the cheap crooks selling the loans making thousands on
fees. There was no overlap. No Venn diagram.

But what's going on is no longer a "subprime" crisis. It is a credit
crisis. Companies are divebombing because they can't get credit. Even very good companies. Their debt is coming due (everything runs on credit; did
you ever see anyone walk into an auto dealership with $20,000 stuffed in
their pockets?) and they can't roll it over. Even investment grade
companies (like Southwest Airlines) have to pay 10% interest to raise money
now. I only pay 12% on my credit card line. The cost of debt service alone
can kill companies. So they're selling all their assets at fire sale
prices. Or they're going into bankruptcy because the banks are calling in
their loans. Banks that are getting billions in taxpayer money.

But the real problem that hasn't been solved by any statistical equation or
the financial wizards in Washington is that of credit default swaps. The
notional value of credit default swaps is something in the range of $50
trillion (for/against default)
my dailykos
. That's why AIG is hemorrhaging money: they owe so much on the
"insurance" contracts (credit default swaps) they made with counterparties
that things wouldn't default. AIG didn't hedge against the CDSs they wrote
(no capital cushion-credit default swaps aren't regulated at all, in fact no
one knows how many there are); it just kept collecting premiums. Now the
entities it wrote contracts on are defaulting and the gov't is pouring money
into it to keep it (futilely) from defaulting itself.

Fun, huh?